It has been a quiet week in Credit. We are coming off of the biggest month ever in terms of supply – September saw almost $150 billion in new issue, which the market readily absorbed. Spreads rallied nicely after the Fed no-action. Even the Street seemed like they were turning just a little more positive, possibly increasing their balance sheet. Then we ran smack into October, and it feels like everyone has gone to sleep. Things usually slow down a little bit this time of year – it’s quarter end, companies are entering their earnings blackout period (during which they can’t issue debt), and portfolio managers start to focus on protecting their performance during the 4th quarter. This year it feels almost like December, and we are sure that the Government shut-down, rapidly rolling towards the debt ceiling, is a big part of the reason. Nobody wants to place a bet on the political process.
Against that backdrop, few issuers stepped up to the plate this week. Supply was light, with about $15 billion issued in a smattering of new deals. American Honda Finance was the biggest transaction of the week – they printed $2.75 billion in three tranches. This was the Company’s first registered deal (previous transactions were all 144a), so that was pretty exciting. The deal was significantly oversubscribed, and bonds tightened around 10 basis points after the deal freed to trade.
While issuers seem inclined to join the shutdown, buyers on the whole remain pretty content. Spreads have moved mostly sideways this week, and in contrast to the debt ceiling debacle of August 2011, they aren’t showing any signs of stress as we watch the scene in Washington play out. In secondary markets, credit feels pretty well bid, and we think it’s been tougher to get good offers.
In spite of what appears to be a benign environment, it feels to me like we better sleep with one eye open.